Study finds buyouts boost jobs

The Private Equity Council has released a report that contradicts an academic study set to be presented at the Davos summit next week.

The Private Equity Council has released a study on private equity’s employment effects that is in stark contrast to an academic study scheduled to be officially presented at next week’s World Economic Forum.

The study commissioned by the industry lobbying group found employment gains among a sample set of 42 companies acquired by eight PEC-associated US private equity firms between 2002 and 2005.

Its release comes days before Steven Davis, a professor at the University of Chicago Graduate School of Business, is set to present contrary findings at next week’s Davos summit.

Davis’ preliminary findings were made public nearly two months ago: After studying 20 years of data and comparing it to control companies with similar characteristics that were not buyout targets, he found on average that companies acquired by private equity firms had fewer employees in the years following the buyout. He also found that while employment shrinks at both control firms and at private equity-backed firms, employment shrinks faster at private equity-backed firms.

Robert Shapiro

The PEC study, which was conducted by Robert Shapiro, former US Secretary of Commerce, is based on empirical data provided by eight unnamed private equity firms, and found that 76 percent of the portfolio companies recorded job gains, and 24 percent reported reductions.

Portfolio companies in the manufacturing sector in particular increased their global employment numbers by 8.6 percent and their US employment numbers by 1.4 percent, compared with overall domestic manufacturing job losses of 7.7 percent. Non-manufacturing companies expanded total employment by 8.4 percent, and their US employment by 14.3 percent, compared to overall domestic non-manufacturing job gains of 7.4 percent.

“The data show that large private equity transactions produce significantly greater job gains than observed in other companies in the same sectors, especially other large companies,” Shapiro said in a statement.

The Private Equity Council’s members are Apax Partners, Apollo Global Management, Bain Capital Partners, The Blackstone Group, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts, Providence Equity Partners, Silver Lake Partners, THL Partners and TPG.